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Who Let CAT Out of the Bag?

There was an interesting post on Zerohedge this morning discussing its earnings. GAAP versus non-GAAP made a huge difference, as is so often the case these days.

Because while CAT reported adjusted EPS of $1.28, up exactly 100% from a year ago – almost as if it was goalseeked – something far less appetizing emerges when looking at CAT’s actual, GAAP EPS, which happen to be exactly one quarter of the non-GAAP number, or $0.32, a 30% drop from a year ago.

The term “goalseeked” caught my attention. As it turns out, I chart CAT from time to time. On Jan 27, CAT reached the top of a falling channel shown below in red at the same time that it completed a Gartley Pattern at the .786 Fib.

The channel looked pretty legit, as it was based on two recent, prominent lows. And, the .786 Fib was legit enough, as CAT had a significant reversal just shy of its .618. The last time I charted it, I assumed it would reverse off the .786 and, at the very least, tag its SMA200 as it approached the .618 at 90.41.

As an aside, it had already reached 90.41 (on the nose) on Mar 9 — a few days after Federal officers raided its offices, looking for evidence of accounting irregularities. It dipped even lower by Mar 27, but was saved from a worse fate by a timely Goldman Sachs “conviction buy” upgrade (a more accurate call than Goldman’s sell recommendation at its lows of 57 in Jan 2016…but, I digress.)

Until the VIX smackdown of the past two days, sub-90.41 looked fairly likely. CAT had fallen below its 10, 50 and 100-day moving averages and was working lower in a channel that intersected with the SMA200 at 89.65 yesterday.

Instead, CAT rose over 11% over the next two sessions. It reminds me a great deal of GS’s goal-seeked “breakout” back in November [see: Goldman’s Slick Trick.] which saw it gap above strong resistance and pile on 20% just about the time — and, I’m sure this is a coincidence — that stock options became exerciseable.

That analysis stuck in my mind because it was so “goalseeked” as to be blatantly obvious. In fact, just today GS reached an important price level that could have significant implications for both it and broader markets.Back to CAT. Maybe the fabulous, non-GAAP numbers will be enough to send it up to new highs. Maybe, they won’t. Aside from the .886 Fib at 105.18, there’s one final trend line (in purple) that suggests at least a pause.

And, of course, there’s the issue of oil prices — which, because they’re highly correlated with CAT’s business and stock price — could have an even greater impact than creative accounting going forward.